Question 4: Capital budgeting: (10 marks) You are the Management Accountant for Rescue and Recovery Ltd. Management decided to increase the manufacturing capabilities of the company. It was decided to purchase a new CNC machine. The company uses two methods to evaluate capital projects: Payback Period and the Net Present Value (NPR) methods. Two suppliers were approached, and they supplied the following detail. The accountant provides you with the annual cash inflows. HAAS (Pty) Ltd Acquisition Costs 450,000 Installation Cost 45,000 Commissioning Cost 15,000 Tooling cost 12,500 TH Machine Tools (Pty) Ltd 500,000 50,000 20,000 14,000 Trade-in cost of the old CNC machine 75,000 85,000 Training of Staff 15,000 12,500 Depreciation 25% per annum Finance Cost 10% per annum Estimated annual cash flow: Year 1 120,000 105,000 Year 2 135,000 135,000 Year 3 155,000 165,000 Year 4 165,000 170,000 Residual value at the end of 4 years 50,000 60,000 The machine will not be sold at the 4-year term. The company has a 3-year maximum acceptable payback period. The cost of capital used to evaluate capital purchases is 12%. Required: Advise management which CNC machine to purchase. Use both the Payback and the Net Present Value to support your advice. Please note: Ignore any tax implications. (VAT, recoupment, capital gains tax etc)